This article
critically examines the European Union Emissions Trading System (EU ETS) and
explores how Pigouvian and Coasian approaches influence and constrain its
design. While the EU ETS incorporates both corrective measures for
environmental externalities (Pigouvian logic) and negotiated allowance
exchanges (Coasian logic), its operation is mainly shaped by regulatory
decisions on allowance allocation, ongoing adjustments, and interactions with
other legal instruments. Therefore, the article argues that the EU ETS cannot
be fully understood through classical theoretical models alone; rather, its
logic arises from the legal-institutional and governance framework that guides
its real-world implementation.
